[Direct answer]In the Beijing area, the party claiming to reduce the penalty for breach of contract shall bear the burden of proof for its claim, that is, to prove that the agreed penalty for breach of contract is excessively higher than the losses caused by the breach. According to Article 85 of the Civil Code of the People's Republic of China (effective January 1, 2021), if the agreed penalty for breach of contract is lower than the losses caused, the party may request the people's court or arbitration institution to increase it; if the agreed penalty for breach of contract is excessively higher than the losses caused, the party may request a reasonable reduction. In practice, the request for reducing the penalty for breach of contract is usually initiated by the party in breach, who needs to provide evidence to demonstrate the scope and amount of the actual losses, or to prove that the penalty for breach of contract calculated according to the agreed standard is obviously higher than the actual losses and is unfair, so that the court or arbitration institution can adjust it appropriately on this basis. The party in compliance may provide evidence of the actual losses, the circumstances of the breach of contract, and the contractual provisions to support the calculation of the penalty for breach of contract according to the agreed standard. It should be noted that the adjustment range is determined by the adjudicating institution based on factors such as the actual losses, the performance of the contract, the degree of fault of the parties, and the expected benefits, generally aiming to make up for the losses and provide appropriate punishment, rather than necessarily reducing the penalty significantly upon request. Therefore, both parties should focus their claims and defenses on the evidence of the actual losses.

I. Problem background and typical scenarios

When the amount of the penalty is too high or too low, the parties often request an adjustment, and the allocation of the burden of proof directly affects the outcome. There are three typical scenarios: first, the breaching party requests a reduction in the high penalty; second, the performing party requests an increase in the low penalty; and third, the parties have a significant dispute over the actual amount of losses. When the Beijing area courts handle such cases, they will require the party claiming an adjustment to provide evidence of the necessity of the adjustment, and make a comprehensive judgment based on the actual losses, the degree of fault, and the expected benefits. Understanding the allocation of the burden of proof can help parties prepare evidence in a targeted manner in disputes over penalties.

II. Key points of contention

First, who should bear the burden of proof for reducing the penalty clause. Second, how to determine and prove the actual losses. Third, the standards for judging whether the penalty is too high or too low. Fourth, the adjustment range and consideration factors. Fifth, the consequences of insufficient evidence. The core is to review the adjustment of the penalty clause within the framework of the burden of proof and loss determination, and clarify that the party claiming to reduce the penalty (usually the breaching party) needs to provide evidence that the penalty is excessively higher than the actual losses.

III. Professional analysis by Henglue Lawyers

From a practical perspective, the burden of proof for adjusting the penalty for breach of contract follows the general rule of "who claims, who provides evidence". Those requesting a reduction in the penalty for breach of contract are typically responsible for providing evidence, and they need to prove that the agreed standard of penalty is excessively high compared to the actual losses caused by the breach. For example, they can demonstrate through financial data, market data, or information on similar transactions that the losses are relatively small, or prove that the calculation based on the agreed standard is obviously unbalanced. Correspondingly, if the party in breach claims that the penalty should be calculated according to the agreed standard, the party in compliance can provide evidence of the actual losses, the circumstances of the breach, the performance of the contract, and the expected benefits. In a commissioned creative contract dispute handled by Henglue Lawyers, the client had completed and delivered the work, which was accepted by the other party. However, the other party delayed payment of the contract amount for a long time. Based on this, the attorney claimed payment of the contract amount and the penalty, and provided evidence such as the contract, acceptance records, and payment transactions to demonstrate the facts of the breach and the losses, ultimately gaining the support of the arbitration tribunal. This case shows that whether claiming a penalty or defending against an excessive penalty, both should be based on evidence. The contract's provisions on the penalty, the records of performance and breach, and the proof of actual losses are key factors in determining the adjustment result. It should be noted that the law generally adjusts the penalty by appropriately reducing or increasing it, primarily to compensate for actual losses, while also considering factors such as the performance of the contract, the degree of the parties' fault, and the expected benefits. Therefore, parties should organize evidence around actual losses and rationally put forward claims or defenses.

IV. Practical suggestions and legal basis

Action suggestions: Firstly, the party advocating for a reduction in the penalty should provide evidence of the excessive amount compared to the actual losses; Secondly, the party in compliance should provide evidence of the actual losses, the circumstances of the breach of contract, and the expected benefits; Thirdly, keep the contract, the communication records of performance and payment, and the proof of losses; Fourthly, pay attention to the adjustment range, with the main purpose of making up for the losses and taking into account factors such as fault; Fifthly, if no agreement can be reached, the parties may seek adjustment through litigation or arbitration. For enterprise commercial and contract disputes, reference can be made to the relevant provisions.Business and contract disputes in enterprisesFor issues involving evidence and procedures, you may refer to the following materials for reference:Integrated legal servicesLegal basis: Article 85 of the Civil Code of the People's Republic of China (effective from January 1, 2021). The specific application shall be subject to the currently effective laws, regulations, and judicial rulings.

5. Henglu Law Firm's Reminder

Firstly, the party claiming to reduce the penalty for breach of contract shall bear the burden of proof. Secondly, the actual loss is the core of judging whether the penalty is too high. Thirdly, the adjustment should focus on making up for the loss and take into account factors such as fault. Fourthly, it is difficult to obtain an adjustment if there is insufficient evidence. In cases involving contract disputes, the parties can resort to the following methods:Business and contract disputes in enterprisesThe acquisition of services involves the integration of evidence and proceduresIntegrated legal servicesFor matters related to the enforcement of compensation, you can refer to the following documents for reference.Creditor's rights and debts, and enforcement casesColumn.

VI. Frequently Asked Questions

Q1: Who should provide evidence to support the claim that the penalty for breach of contract should be reduced?

The party arguing for a reduction in the penalty, usually the party in breach of contract, needs to prove that the agreed penalty is excessively higher than the actual losses caused by the breach of contract.

Q2: How to prove that the penalty for breach of contract is too high?

It can be demonstrated that the actual loss is relatively small through financial information, market data, similar transaction situations, or appraisal opinions, which prove that the calculation based on the agreement is obviously unbalanced.

Q3: What does the party fulfilling the contract need to prove?

The party in breach of contract may provide evidence of the actual losses, the circumstances of the breach of contract, the performance of the contract, and the expected benefits to support the calculation of the breach of contract penalty according to the agreed standards.

Q4: Is it inevitable that the proposed adjustment will lead to a reduction in pay?

Not necessarily. Whether to adjust and the extent of the adjustment shall be determined by the arbitration body based on a comprehensive assessment of the actual losses, the degree of fault, and the expected benefits, with the primary aim of compensating for the losses.

Q5: What will happen if the evidence presented is insufficient?

If the party advocating for an adjustment fails to provide sufficient evidence, it will generally be difficult to gain support, and the breach of contract penalty will usually still be calculated in accordance with the contract unless there is a significant imbalance.

The above answer is based on the judicial practice in Beijing. The judicial interpretations in other provinces and cities may vary. For specific cases, please refer to the local rules and evidence situation.

If you are currently facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the relevant evidence materials, to avoid missing the statutory time limits.Corporate commercial legal services·Attorney Xiong Binrong·Beijing Henglue Law Firm

Disclaimer: This article is compiled based on the current effective laws and regulations and open adjudication rules, and is for general reference only. It does not constitute a formal legal opinion on specific cases. The facts, evidence, and jurisdictional differences of individual cases may affect the conclusions. In case of disputes, please consult a practicing lawyer in time.